Harvard Professor Rogoff: Can Trump Devalue the Dollar if He Wins?(AI Translation)

【周刊提前读】哈佛教授罗格夫：特朗普能否实现弱势美元？

If Donald Trump returns to the White House in 2025, one of the main concerns will be whether he can meet Senator Vance's desire for a weakened dollar. Both Trump and Vance share the belief that to revive American manufacturing, it is essential to raise tariffs and devalue the dollar [para. 1][para. 2]. This viewpoint has seen Vance transform from a Trump critic to a staunch supporter, echoing sentiments about the strong dollar diminishing American labor's competitiveness [para. 2].

Historically, attempts by U.S. Presidents and treasury officials to influence the dollar's value through statements have largely failed. Trump's tax cuts and tariff policies might inadvertently lead to a stronger dollar by necessitating higher interest rates [para. 3]. Mainstream media often highlight flaws in Trump's economic strategies without acknowledging that the dollar is already quite strong, as evidenced by American tourists' overseas purchasing power [para. 4].

The "real dollar exchange rate" index, which adjusts the dollar's value for relative inflation among the U.S.'s major trading partners, indicates that the dollar's current value surpasses historical benchmarks, with notable peaks only in 1985 and 2002. Historically, such peaks were followed by sharp depreciations [para. 4][para. 5]. Exchange rate movements can be unpredictable, but there is an empirical tendency for them to revert to the mean after significant deviations. This reversion usually happens over three years [para. 6].

Given these patterns, the argument for a currently overvalued dollar stands. This means Trump’s desired depreciation might occur naturally, without active intervention [para. 6][para. 7]. Even a potential Harris administration could witness similar trends [para. 7]. An illustrative comparison is Japan, where its inflation rates have been much lower than those in the U.S. over the past three years, resulting in a significant depreciation of the yen against the dollar. Despite Japan's efforts to achieve a 2% inflation target, U.S. inflation under Biden has approached 20%, making Japan cheaper for tourists [para. 8].

Factors that might drive currency appreciation, such as the Japanese yen, include differing interest rate cycles. U.S. long-term rates remain high post-pandemic, while Japan might see rising rates due to its rate-hike cycle. A weak yen contributes inflationary pressure on Japan, as it needs to import commodities like dollar-denominated oil, while the U.S. imports cheap goods to control domestic inflation. Recently, Asian countries have accelerated exports to avoid potential tariff increases if Trump wins, causing container shipping prices to spike [para. 9].

While predicting the exact timing of the dollar's fall is challenging, it’s likely that the dollar will continue appreciating before any eventual decline [para. 10]. Trump's tariff policies will probably persist regardless of dollar depreciation, as both he and Vance view tariffs as politically viable and effective [para. 10]. Even worse than additional tariffs, the Trump administration might intervene in the foreign exchange market, potentially via capital controls or installing an ineffective Federal Reserve chair [para. 11].

Trump and Mnuchin recognize the drawbacks of a strong dollar, but their proposed solutions might be more detrimental than the problem itself [para. 11].

**Author Information**: The author is a Professor of Economics and Public Policy at Harvard University and a former Chief Economist of the International Monetary Fund. This article was excerpted from Caixin Weekly, slated for publication on August 12, 2024, titled "Column | Can Trump Achieve a Weak Dollar?"